Is it a good buying opportunity?

Gold is one of the most traded commodities and assets in the world. In fact, there are several ways for trading Gold. However, the most common way for trading the commodity is through derivative contracts, contracts for difference (CFDs), as well as other futures and options contracts that give access to the market and are great opportunities for trading Gold and benefiting from the great market movements that it usually offers in a short period of time.

The reason we have picked Gold for one of our Bonus Reports this month is because during the start of the coronavirus pandemic Gold was among the best performing assets out there that appreciated over 40% between March and August last year. In other words, the price bounced from the lows at $1450 on the 20th of March to reach the $2075 highs on the 7th of August last year, representing a 43% rise over a 5 month period – quite an impressive rally. What was the reason for that?

Actually, the reason Gold went up so much was mainly driven by investors’ desire for safe-haven assets – instruments that tend to perform well during such uncertainties on the market, such as global economic crisis, political uncertainty and other tough times on the market. In other words, the coronavirus pandemic caused lots of trouble across the globe and that has been the reason investors started looking for more safe and secure assets to invest their capital in. That means Gold is one of those safe-haven assets that investors consider less risky during such times on the market and present an alternative compared to investing in stocks for example when the stock market was hurt initially due to the coronavirus outbreak. In other words, when they started taking their money out of the stock market they needed to find an alternative investment opportunity with less risk and a high potential return – well Gold has been the most famous and attractive instrument to own during such times on the market that gives a chance for investors and traders to maximize their profitability to the upside.

Yet, the price of Gold has been in a downtrend since August. One of the main reasons for that is because logically speaking, after a 43% rally in 5 months investors were interested in cashing in some profits after the huge spike that took place last year. Moreover, the stock market was extremely bullish after the massive correction that took place between the 20th of February and the 20th of March and investors got very excited about buying stocks at a huge discount that gave a great opportunity for making high profits to the upside. Some of the biggest stocks out there dropped 35-40%, giving an amazing opportunity for investors to buy their favourite stocks and make high profits on the way up. In other words, the market participants became more positive about the stock market and after making 43% profit on their Gold positions it was logical to expect a profit-taking interest where they started reinvesting their earnings on the stock market, which further boosted the share prices afterwards. Moreover, the positive news around the vaccine coming from a few leading pharmaceutical companies out there have been giving more boost to the stock market and therefore less interest towards owning Gold in investors’ portfolios. That by itself had an immediate bearish impact on the price of Gold, sending it from the $2075 highs to the $1676 lows in the beginning of March this year.

Chart: Gold

By looking at the chart above, one could see that the price failed to break that $1680-$1700 support and once it got to that level there was lots of buying pressure taking place, leading to an immediate bullish effect on the price in the first part of March. The reason for that is because that support has been bringing lots of buying pressure in the past and traders and investors that would like to take advantage of the correction on the price in the past few months have started buying at that point in order to make high profits to the upside. Since then, we have seen the price bounce towards the $1740 and drop back down to test the $1700 support, failing to break it again, followed by another bullish spike towards the current levels at $1730. Moreover, the technical indicators such as RSI and Stochastics have already gone up from the oversold territory, giving further bullish indications.
Overall, Gold is down 17% since August and we believe it is very likely smart money would start flooding into the price and it is very possible Gold would start developing to the upside from the current levels.

Therefore, we would wait for a bit of a profit-taking correction back towards the $1700 support and would start buying around $1700-$1710. Should the price drop further, we would be adding more to our long positions at the next key support at $1680 where we are expecting to see more bullish interest to take place, which could easily lead to a price reversal to the upside afterwards. Our initial take profit-target would be set at $1740, followed by the next target at $1800-$1820 where we would be fully cashing in our profits and wait for another correction that would give us a chance to buy again at a strong support and make profits to the upside again in the future.


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